Tycho Arete Macro Fund

Overview

Tycho Arete Macro Fund aims to deliver competitive risk-adjusted returns while maintaining a low correlation with all major asset classes. It strives to construct and update macro-analytical frameworks that incorporate the rapidly changing macroeconomic conditions around the world, as well as the significant idiosyncrasies of large global actors such as China and Japan.

Strategy & Manager

Performance

Commentary

Investment Manager’s Commentary – January 2026

January Review

January forcefully extended the defining macro trends of 2025. Amid this intensity, a fascinating interplay of convergence and divergence has unfolded across global financial markets.

On the convergence front, the dominant theme has been the unwinding of U.S. exceptionalism. The U.S. dollar, having breached critical technical levels, now sits near multi-year lows. Meanwhile, the S&P 500’s modest ~1% return in January was overshadowed by standout performances in Asian and emerging markets. This rebalancing signals a broader democratization of growth, with capital flows diversifying beyond U.S. borders.

This convergence is also evident within U.S. markets through a pronounced rotation from mega-cap tech toward cyclical and value sectors. Materials, energy, industrials, and consumer staples have led the S&P, revealing a clear pro-cyclical bias.

Yet, amid this convergence, divergence reigns in China, painting a portrait of an economy in transition. The vibrant, innovative private sector—represented by the CSI 1000 small-cap index’s +8.7% YTD gain—starkly outperforms the lagging “old economy,” as seen in the XIN9I’s -2% decline. Financials are a notable exception, thriving amid regulatory reforms and renewed capital market activity.

Our strategy successfully capitalized on these structural shifts in January. Top PnL drivers included our long Chinese small-caps versus short large-caps positions, which monetized the divergence between old and new economies. Sectoral bets such as long financials, AI hardware, and internet also yielded positive returns. Finally, long commodity and short USD positions contributed positively as U.S. exceptionalism continued to unwind.

Current Outlook

Looking ahead, the market story and risk landscape will be shaped by the interplay of three complex narratives:

First, the great fiscal awakening. Trump 2.0 has not only elevated baseline realized volatility but also ignited a profound cyclical impulse to spend. Across developed economies, a strategic pivot toward security and reindustrialization is unlocking waves of government spending. While this acts as a powerful tailwind for global growth and corporate earnings— potentially sparking a broader economic boom—it also carries a cost: structurally higher capital costs in a hotter economy. We anticipate bond market volatility to become a recurring feature rather than an anomaly. This erodes the traditional 60/40 portfolio cushion, driving investors toward creative hedges and explaining the surge in demand for alternatives such as gold.

Second, the AI narrative may be entering its next, more democratic chapter. For years, it has been dominated by staggering capital expenditures and the ascent of a few tech titans. The plot is thickening: as technology advances with each new model release, we may be approaching a tipping point of more widespread adoption, unlocking substantial investment and productivity gains. This broadening suggests the next wave of winners could include a diverse set of companies embracing AI, spreading equity gains beyond a handful of sectors. Notably, this highlights divergent paths between the U.S. and China. While the U.S. leads in foundational models, China is aggressively integrating AI into its vast commercial ecosystem. Breakthroughs in applied, agentic AI—such as Alibaba’s latest Qwen update—signal a near-term roadmap where productivity surges and monetization could exceed expectations, even under constraints.

Finally, we’re watching China navigate its own great divergence. The energy in its new economy is palpable. Yet, it operates in the long shadow of the old economy’s slowdown. What’s new this year is the presence of an additional headwinds. We’ve long watched the weakness in consumer demand, but now pressure is also emerging from the supply side: cautious stimulus, strained local government finances, and shifting regulatory goals are collectively tightening the tap on investment capacity. The irony is that China may finally see producer prices rise, an escape from the deflationary trap, but not for the reasons markets hoped; it could be the result of a constrained supply base and higher costs rather than hoped-for vibrant demand. The outcome would be thinner corporate profits alongside modest inflation—a mix that poses a risk not just domestically, but could also export a subtle, supply-driven inflationary pressure to the world, complicating the already delicate task of central bankers globally.

We are navigating a world where fiscal policy is resurgent, technological promise meets practical application, and new inflationary risks loom. The thriving portfolio will connect these narratives and balance their tensions. Accordingly, we remain positioned for long-term structural opportunities: a rise in the cost of capital, expressed through U.S. curve steepeners and short duration; robust demand for AI infrastructure, via a basket of cloud service providers (CSPs) and AI hardware; and the institutionalization of Chinese equity markets amid household wealth reallocation through financials and small caps. Meanwhile, we stay vigilant on short-term cyclical factors that could amplify volatility. Agility and selectivity remain paramount, as always.

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